Your Top Questions About Work and Social Security

The rules around Social Security can bring up a lot of specific questions. Here are answers to some of the most common ones we hear.

What about self-employment income? Does it count toward the earnings limit?

Yes, it absolutely does. However, the SSA looks at your net earnings from self-employment, not your gross income. Your net earnings are your total income from your business minus all your ordinary and necessary business expenses. So, if you earn $30,000 from a consulting business but have $8,000 in legitimate business expenses, only $22,000 counts toward the earnings limit. This is a significant advantage of self-employment. For more details on what counts as a business expense, the Internal Revenue Service website is the best resource.

Do pension, investment, or IRA withdrawal incomes count toward the earnings limit?

No, they do not. The Social Security earnings limit only applies to wages you earn from a job (W-2) or net earnings from self-employment (1099). Income from other sources, such as pensions, annuities, investment gains, interest, or withdrawals from retirement accounts like an IRA or 401(k), does not count toward this specific limit. However, remember that this income does count when calculating your provisional income to see if your benefits will be taxed.

How are Social Security benefits taxed by the state?

This is an excellent question because it varies widely. The federal tax rules we discussed apply to everyone in the U.S. But each state has its own tax laws. The majority of states do not tax Social Security benefits at all. A small number of states do tax them, but they often have their own income exemptions for seniors that may protect your benefits. The best approach is to check the website for your specific state’s Department of Revenue or Treasury to understand the local rules.

If my benefits are withheld because I earned too much, are they gone forever?

No, and this is a point worth repeating. The money is not permanently lost. When you reach your full retirement age, the Social Security Administration will automatically adjust your monthly benefit amount upward. They recalculate your payment to give you credit for any months in which you did not receive a benefit due to the earnings limit. This results in a slightly higher monthly check for the rest of your life, which helps you recoup the withheld funds over time.

How do I report my earnings to the Social Security Administration?

If you work a traditional W-2 job, your employer will report your wages automatically through their payroll process. You don’t need to do anything extra. If you are self-employed, the SSA gets your earnings information when you file your annual federal income tax return. However, the SSA encourages you to notify them if you know you will be earning more than the limit. You can call them or use your online “my Social Security” account at www.ssa.gov/myaccount to provide an estimate of your earnings. This can help them adjust your benefits more accurately throughout the year to prevent a large overpayment that you’d have to pay back later.